Mervyn King wants Britain's banks to be forced to plough the "windfall" profits from 2009 back into building up their balance sheets, instead of handing them out in dividends and bonuses, minutes of the government's new City oversight body reveal.

The Council for Financial Stability, which brings together the chancellor of the exchequer, the governor of the Bank of England and the chairman of the Financial Services Authority (FSA), is meant to replace ad hoc gatherings of the "tripartite committee" that was blamed for fumbling the Northern Rock bailout.

Reporting the governor's remarks at the opening of the committee's first meeting, the minutes said that "banks had benefited from windfall gains during 2009. The Bank believed that there was a strong case for limiting distribution of those profits in the immediate period ahead, to front-load balance sheet repair."

Lord Turner, the FSA chairman, said the regulator was already in discussions with the banks about how they would distribute their profits – and had forced several to reduce their payouts.

"FSA interventions had made sure that in some critical cases the amount and/or form of firms' payouts had been adjusted to be more consistent with future known or likely capital requirements," the minutes report.

In wider discussions, the committee's members made clear that they were still concerned about the potentially destabilising impact of fixing the banking sector, saying: "The banks needed to continue the process of deleveraging and balance-sheet repair. But if this was done by curtailing lending to the non-financial economy, those repair efforts would ultimately be counterproductive."

Turner agreed with King that banks must draw up an "exit strategy" from the huge taxpayer support they have received over the past two years. The special liquidity scheme, which allowed banks to swap hard-to-sell assets such as sub-prime loans for more liquid government bonds, is due to expire next year.

King pointed out that banks must raise £1tn in new financing over the next five years. The FSA also revealed that it was already working with four banks on pilot projects to draw up "living wills" to show how they could wind themselves down in the event of a crisis.